U.S. Supreme Court Rules in Favor of Employer Shifting Health Costs to Retired Employees

 

By Marc J. Zimet, Esq. of Jampol Zimet, LLP

On January 26th, 2015 the U.S. Supreme Court ruled in favor of an employer which amended its collective bargaining agreement. The ruling in this case is important to employers with similar agreements, as the ruling alters case law and sets forth new precedent that will affect past and future agreements that provide retirees with benefits.

The case, M&G PolymersUSA, LLC v. Tackett involved almost 500 former employees of M&G, a subsidiary of Mossi & Ghisolfi International, based in Italy. The employees all had worked at the company’s West Virginia plant. They sued following the company’s announcement that the retirees would be required to contribute to their healthcare costs, claiming that their collective bargaining agreement guaranteed their health benefits without requiring any contribution.

Following a bench trial, the retirees won and the company was issued an injunction requiring it to reinstate the original benefits. On appeal, the 6th Circuit upheld the district court’s ruling. M&G thereafter appealed to the Supreme Court, seeking review of whether the appellate correctly presumed that the benefits vested for life when it found the agreement failed to clearly state the duration of the healthcare benefits.

The Supreme Court, Justice Thomas writing, found that the appellate court did not utilize the correct legal analysis, stating, “when a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life.”  The ruling operates to overturn the case of International Union, United Auto, Aerospace, & Agricultural Implement Workers of Am. (“UAW”) v. Yard-Man, Inc., (1983) 716 Fed.2d 1476. In Yard-Man, it was held that where a collective bargaining agreement stated the employer “will provide” health care benefits, and the agreement was otherwise silent as to term, the court inferred the benefits were intended to vest for life. The reasoning was that the benefits were “status” benefits, and so long as the retirees held their status, the benefits should continue. The circumstances in M&G are nearly identical to those in Yard-Man, however, the Supreme Court declined to follow its rationale, finding that “courts should not construe ambiguous writings to create lifetime promises.”

This change in law means employers will find it easier than they have in the past to amend collective bargaining agreements as well as eliminate lifetime benefits to retirees. Employers drafting agreements for future retiree healthcare benefits must keep this ruling in mind when determining how to provide these benefits and the intended duration of them. Employers who currently have collective bargaining agreements should revisit those to determine how the new rules affect retirement provisions.

If you are an employer with a collective bargaining agreement and would like to know how the new rules affect you, please contact Marc at (213) 689-8500 or at mzimet@jzlaw.com.

 

 

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